Fixing the estate tax

April 21, 2005

REPUBLICANS once again are seeking to sever the link between life's certainties - between death and taxes. But a much less sweeping fix is in order. The GOP-led House last week voted for the fourth time in four years to eliminate the federal estate tax. In the Senate, pressure mounts again to find the 60 votes needed for a permanent repeal after 2010.

Proponents of repealing the estate tax call it the "death tax." But repeal opponents like to point out it would mostly benefit folks like celebrity hotel heiress Paris Hilton. Indeed, canning this tax would be a big win for the Bush administration's drive to free wealth from taxation. Nothing better illustrates the interests served by this White House.

And contrary to GOP tales, it's not warranted by the facts: By and large, this tax is not forcing families to sell off farms and small businesses. Right now, less than 2 percent of all estates are taxed, and less than 1 percent of all estate tax revenue comes from estates principally based on family businesses or farms.

Plus, the timing couldn't be worse. Repealing the estate tax would cost the Treasury about $40 billion in 2011 and ultimately add, with interest, an estimated $1 trillion in debt by 2021 to the nation's deteriorating fiscal outlook, according to estimates by the Center for Budget and Policy Priorities.

With its 2001 tax cuts, the Bush administration left open the need for action on the estate tax by creating a financial-planning nightmare. Through 2009, the exemption level for the estate tax is to rise and the tax rate fall. In 2010, the tax rate will hit zero. Then in 2011, the exemption is to revert to $1 million and the rate go back to 55 percent.

Rather than a repeal, a more sensible approach is a compromise advanced by congressional Democrats: Set the estate tax at what's planned for 2009: a $3.5 million ($7 million for couples) exemption and a 45 percent tax rate.

That's more generous than what was in place in 2001. It would exempt all but three of every 1,000 estates and hit only 50 estates a year that derive most of their value from farms or small businesses, according to the budget and policy center.

At the same time, this compromise would still capture 44 percent of the estate tax revenue that would be lost in a repeal, enough to meet a quarter of the projected Social Security deficit over the next 75 years, according to Social Security calculations.

The estate tax should be fixed. But prudence is in order, not another gift by this president and congressional Republicans to the nation's wealthiest.

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